Toll Brothers chairman on housing: ‘A sloppy boat ride’

Luxury home builder Toll Brothers cut its annual forecast Wednesday, signaling that struggles for U.S. housing are being felt in the higher end of the market, and not just among those dealing with less expensive properties.

The company narrowed its guidance for fiscal 2014 deliveries, including a cut to the top of its estimate, to a range of 5,300 to 5,500 homes, compared with a prior forecast of 5,100 to 5,850 homes. For the fiscal third quarter, net signed contoltracts fell 6% in units from the year-earlier period, Toll reported.

Speaking broadly about U.S. housing, the market is likely to see more “choppy seas and a sloppy boat ride,” Executive Chairman Bob Toll said during a conference call to discuss the company’s financial results.

It’s been a surprisingly tough year for housing. Looking at the total U.S. residential market, July’s sales of new single-family homes hit the slowest pace in four months, with drops in three of four U.S. regions, according to government data. Quickly rising home prices and limited inventory may be keeping some buyers on the sidelines.

Economists had hoped to see stronger sales of new homes given that purchases remain historically low, as do mortgage rates. In addition, new homes, especially those produced by luxury builders, typically cost more than a used home, serving a wealthier customer base. If these buyers aren’t shopping, that’s one more reason to worry about the market’s recovery.

There are several strong headwinds working against home sales. For one, many families are having a tough time getting a mortgage. In addition, workers are seeing slow wage growth, and many young borrowers, weighed down by substantial student loans, aren’t buying their own place, limiting other families’ ability to purchase a new home.

However, Toll executives aren’t letting a little choppiness get them down too much.

“We are inching forward but the big game is out there and it will occur,” Bob Toll said.

And in another sign of confidence, the company isn’t feeling pressured to offer financial lures to sell homes.

“Although we have seen some lessening of pricing power in the past year, we have not felt the need to incentivize to spur home sales,” Chief Executive Douglas Yearley said in the company’s financial filing. “We are driven by bottom-line growth and are pleased with our continued margin expansion through what we still believe is a recovering, albeit bumpy, housing cycle.”